Chart Advisor: Everything Is Working

Articles From: Investopedia
Website: Investopedia

By J.C. Parets & All Star Charts

Thursday, 15th June, 2023

1/ Large-Cap Value Reaches New Heights

2/ Industrial Metals Support Stock Market Rotation

3/ High Beta Sets the Tone

4/ Latin America Joins the Party

Investopedia is partnering with All Star Charts on this newsletter, which both sells its research to investors, and may trade or hold positions in securities mentioned herein. The contents of this newsletter are for informational and educational purposes only, however, and do not constitute investing advice.

1/ Large-Cap Value Reaches New Heights

The argument that only five stocks are driving this rally no longer holds weight.

Yesterday, we highlighted the sector rotation underway with a bubble chart. It’s an excellent way to visualize the leadership shift toward cyclical sectors over the trailing two weeks.

But no singular ETF quite captures the burgeoning strength from these markets areas than the S&P 500 Value Index ETF (IVE) posting new all-time highs:

IVE is embarking on unchartered territory as it completes an 18-month base. 

It’s hard to argue that it’s only tech or five stocks driving the S&P 500 breakout when the value index is also printing an upside resolution to new all-time highs.

As long as IVE sticks the breakout, stock market bulls will likely hold court.

2/ Industrial Metals Support Stock Market Rotation

If cyclical stocks have a chance at participating over the long haul, it would be a positive signal to see similar strength from corresponding commodity markets.

And we are. Last week it was rebar futures, and this week it’s copper. 

Here’s Dr. Copper reclaiming a crucial former support level after undercutting its August pivot highs last month.

The upside resolution highlights a significant development for stock and commodity bulls, as copper’s resilience speaks to economic health.

It’s almost impossible to miss the risk-on tone spreading across the market. What started off as a lonely rally for tech and growth names is quickly turning into a trend that cyclical sectors can enjoy. And dogged strength among industrial metals—especially Dr. Copper—supports this broadening participation.

3/ High Beta Sets the Tone

High-beta stocks are reaching new 52-week highs relative to low-volatility stocks this week.

When this ratio is trending higher, it is because investors are favoring riskier stocks over their alternatives. On the flip side, low-volatility stocks outperform in uncertain times due to their defensive attributes.

As you can see, the ratio of high beta (SPHB) vs. low volatility (SPLV) has been rising in a nearly vertical line over the trailing few weeks, reclaiming a critical level marked by its former highs from earlier this year.

As long as SPHB/SPLV holds its breakout level, it would indicate a risk-on tone for the market and could support higher stock prices.

4/ Latin America Joins the Party

The weight of the evidence continues to favor the bulls as breadth expands globally. Even the most economically fragile regions are resolving to the upside.

Here’s  a look at the iShares Latin America ETF (ILF) breaking to new 52-week highs this week.

As you can see, after a year of trading in a well defined range, price pierced through the upper bounds of the box.

Momentum, as measured by the 14-day relative strength index (RSI), transitioned back into a bullish regime for the first time since last summer, confirming the recent breakout. (It is always a positive signal to witness bearish-to-bullish reversals in price accompanied by similar reversal in momentum.)

Due to its heavy weight toward value-oriented names, a sustained uptrend in ILF suggests increasing risk appetite for global equities while supporting the rotation toward cyclical sectors in the U.S.

Originally posted 15th June 2023

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